The move preserves continuity in the team which organised the successful bid and ensures that there will be a member of the cabinet with direct involvement in the project.

Ms Jowell, whose role as minister for the Olympics begins immediately, will continue with her other responsibilities for culture, the media and sport. Downing Street yesterday denied that the arts would be neglected as a consequence.

Political reaction to the decision was overwhelmingly euphoric. Michael Howard was "absolutely delighted" at the news. The Conservative leader said: "I congratulate Seb Coe and all of his team on the magnificent campaign they ran."

The Liberal Democrat leader, Charles Kennedy, said: "This is fantastic ... It will unite the country just as it united the three main political parties in its support."

The Queen joined in the chorus of popular acclaim. "I send my warmest congratulations to ... every member of the London 2012 team for winning the bid," she said in a message to Lord Coe. "It's a really outstanding achievement to beat such a highly competitive field."

Sir Digby Jones, director general of the Confederation of British Industry and a 2012 bid ambassador said: "This is fabulous news for everyone in the UK. The best bid won and now it is up to us all to make a reality of the dream. Sport is big business and the Olympic games will be a win-win for the economy and sporting competition.

"The Games will lift our international profile, attract inward investment and boost profits and jobs for everyone. They will help raise our competitive game all round, and highlight to young people the fantastic rewards and exhilaration of competition.

The Muslim Council of Britain welcomed London's Olympic victory. "This reflects well on London's leading position as a vibrant multicultural city," said the organisation's recently-knighted, secretary-general Sir Iqbal Sacranie. He had lobbied Muslim ambassadors and urged them to support the London bid.

Lyn Brown, MP for West Ham, was "overwhelmed". She recalled: "My dad was a local athletic coach and sport has been in my family for years, so this is just amazing. The Olympics is going to radically change the East End and will radically change the nature of the regeneration that is happening here."

Dianne Thompson, chief executive of the National Lottery operator Camelot, said winning the Olympic bid would "create a lasting legacy for sport in the UK". Lottery funding will contribute some £1.5bn towards the cost of staging the games.

The Right Rev Richard Chartres, Bishop of London, said: "London is a whole world in a city. There is no more diverse community on earth and there could be no better place for the 2012 Olympic games."

Away from the capital, other cities celebrated in the hope of hosting events and participating in a construction boom. Sue Battle, chief executive of Birmingham Chamber of Commerce and Industry, said: "The direct benefit will be that Birmingham will stage part of the soccer tournament at Villa Park ... Forecasts show that only just over 20% of the work for all of the infrastructure will be sourced in the south-east so there is a tremendous opportunity here for us."

The Welsh first minister, Rhodri Morgan, agreed: "The potential benefits to Wales of London hosting the Games go far beyond the world of sport."